3 stocks to buy instead of Robinhood markets
Robinhood Markets (NASDAQ: HOOD) is helping a new generation of young investors get started in wealth creation, but the “gamification” of its application could be problematic. Instead of Robinhood, Motley Fool contributors Jason Hall, Toby Bordelon, and Nicholas Rossolillo discuss three other fintech stocks they love about it. Motley Fool Live Segment “The 5” recorded on September 15.
Jason Hall: Toby dropped this one down here. It’s all over the financial media today, Robinhood’s College Tour. The company is running a marketing campaign, targeting students, and they are probably getting more free advertising money right now and all the articles written about it than they are actually going to spend on doing so. But what they are doing is they go to colleges whose directors and representatives go to community colleges and universities across the country. If you sign up with your college email address, you get $ 15 credits and they’ll get you a big giveaway. Guys, I have to admit, man. It reminds me of the 90s on college campuses and there’s the booth setup and it’s the credit card companies. It’s so predatory, and it’s probably totally unfair for me to think about it, isn’t it? Because they do what we say people should do. Getting people to invest as young as possible is good. I’m just struggling with the gamification of their app. I’m afraid young people will get burned because they are going to start trading and not investing and then they are going to swear to give up stocks, and that’s what I hate about it. But I think I just have to get over it here. Maybe, Toby, what do you think? Remember, getting your freshman college booths by credit card?
Toby Bordelon: I do. It’s the first thing I thought about when I saw the story like you. I’m like, oh my god, this brings me back. But yes, I am falling on the same side as you. I mean, I love that people are interested in investing. I think we all would have been better off instead of those booths with the credit card. It was a booth like signing up to Schwab or any brokerage firm, but yeah, I don’t know.
Room: Toby, I think the problem is you and me. I think it’s us. I don’t think it’s Robinhood here.
Bordeaux: It’s possible. When I think about investing, I’m not sure Robinhood’s goal is to get people to invest. I think the goal is to get people to trade as much as possible, and that’s something that has flaws.
Room: Well if you think about their business model that’s what determines their income. This is the key. Well, here’s a question I want to answer. Nick, I’m actually going to ask you to go here first. I don’t even want to talk about Robinhood anymore. What is your favorite FinTech stock to hold for the long term?
Nicolas Rossolillo: Okay, not Robinhood. Square (NYSE: SQ). I like Carré. They have all the tools a small business or consumer would need in one app. The After payment The acquisition is making headlines, but they’ve also made a few other pretty interesting acquisitions recently. They have the tax preparation stuff they got from Credit Karma. They made it clear that they wanted to be part of the designer economy when they got a controlling stake in Tidal. I’m going to piggyback on Robinhood’s conversation anyway. I think Square does something similar with Bitcoin (CRYPTO: BTC). It’s a fantastic marketing tool to get people to the Cash App trading Bitcoin, and from there they can sell the services that actually generate revenue and profit for Square if they can just integrate them into the Cash app. due to the possibility of buying and selling Bitcoin. These tech companies are good not only at marketing, but also at the psychology behind it. It’s just how they catch customers, and I think it comes down to whether the way they do it is harmful or is it a healthy product that they sell to their users. In the case of Robinhood and getting people interested in investing and Square getting people interested in finance as well, they also have the stock trading platform there. I like the business for the long haul.
Room: At the risk of angering our overlords, include a comment on Motley Fool marketing here. [laughs] Toby, what’s your favorite FinTech stock?
Bordeaux: FinTech. I’ll go a little deeper here when you need to find some FinTech, but I’ll go with it Intuit (NASDAQ: INTU). Intuit is, I think, a company that I like right now. Now you might think of them as these are the people who make TurboTax. They do. They owned Quicken and they derived it, but now they’re back in the consumer space. Intuit owns Mint, which is a favorite app for millennials. It is a consumer credit application.
Room: I love it, I use it all the time.
Bordeaux: Yeah, Mint is awesome. They just bought Credit Karma, which is a nice little solution for them to grow on the consumer side.
Room: I am on Credit Karma once a month.
Bordeaux: Here is.
Room: I’m not young either, but yes.
Bordeaux: Yeah, you’re not young, but you’re young.
Room: I’ll take it.
Bordeaux: Yes. Then on the business side, of course, they have QuickBooks. Just a few days ago, they announced the acquisition, like the company name, of Mailchimp.
Room: Yes, Mailchimp. Twelve billion dollars, right?
Bordeaux: Yeah, it’s 12 billion, big acquisition. This is the biggest acquisition ever. But Mailchimp they’re probably going to strengthen their small business side, but a great business and if you go to their website the tagline you’ll see is “Overcome Your Financial Challenges”. So using technology to help people with financial problems, come up with solutions to financial problems. A very different company than it was 20 years ago. But it’s worth taking a look.
Room: Yeah, I think you’re right, because you threw out a bunch of names that are well known. This younger app ecosystem that people are very familiar with, but Intuit is just a heavy name that people don’t know has so many of these big brands. i will go with Lemonade (NYSE: LMND). So you’re talking about heavy industry, which doesn’t get much heavier than insurance. It’s as old as people who have assets they fear losing is finding someone with money who would be willing to replace them. Lemonade disrupts this in several different ways, for example by targeting financial incentives. I think it’s really interesting, isn’t it, to better align policyholders with insurers. Basically have a take rate and say, OK, that’s the money we’re going to take. It’s ours, we’ll use the rest to cover the underwriting and we’ll use reinsurers, a combination of those two things. And then whatever is left at the end of the year, hey customers, just tell us your favorite charities and we’re going to split it up and we’re going to give all that money that’s left over to charities. By not creating a floating model and the incentives not to pay customer complaints, you immediately improve their customer relationship as a customer. Your ability to pay claims faster is improved because the incentives are changed. As a client I want to be a little more honest because I said Wildlife Fund is my charity. If I’m lying about a claim I’m taking money from my charity, I know I’m doing something immoral that’s going to hurt a charity I believe in. It is therefore important to realign these incentives. They talk a lot about using AI and tech, I think that’s part of it, but I really think the killer app here is realigning the incentives. I don’t think this gets enough credit. You think of some of the growth rates, their customer base increasing by around 50% year over year, applying premiums over 90%, premium per customer up to 29%. So you start to talk about income retention rates. So it’s kind of their equivalent there, it’s really good. Starting with pet insurance, renter’s insurance spreading over time, adding the automobile, adding the owners. You therefore think of starting with the relationship with the young adult, with basic insurance needs. As their needs increase over time, as their financial lives get more complicated, you have kids, you buy a house, all we do, creating a sticky ecosystem and changing the incentives for people to enjoy their company. insurance instead of hating them. that I think is really potent and that’s why I love lemonade.
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